Governor Announces Cuts, But FY2011 Budget Remains Unbalanced

July 1, 2010

On July 1, 2010—the first day of the State of Illinois’ FY2011 fiscal year—Governor Pat Quinn said that his budget for the new year will contain major spending cuts. However, most of the reductions have yet to be determined and the FY2011 budget continues to be unbalanced, with an expected operating deficit of $5.9 billion.

The Governor announced at a press conference that his FY2011 General Funds budget will total $24.9 billion. That total is approximately $1.1 billion below the $26 billion budget passed in May by the Illinois General Assembly (House Bill 859). At the press conference, the Governor said that he was cutting $1.4 billion, but that figure refers to a reduction from the FY2010 budget’s $26.3 billion.

The Governor’s $1.1 billion in spending cuts include $155.2 million in specific reduction and line item vetoes. Line items that have been vetoed or reduced must be reconsidered by the General Assembly during the fall session; an item may be returned to the enacted level by a simple majority vote in the House of Representatives and the Senate in the case of a reduction veto and by a three-fifths super majority vote in the case of a line item veto. The total also includes roughly $25 million in departmental reserves.

The remaining $891 million in cuts consist of appropriations that the Governor will hold in reserve, under authority granted by the legislature in May in the Emergency Budget Act (Senate Bill 3660). Those spending cuts will be determined throughout the year on a case-by-case basis and will be filed with the Illinois Comptroller’s Office, Illinois Budget Director David Vaught said at the press conference.

Reducing the General Funds budget by roughly $1.1 billion would result in an FY2011 operating deficit of $5.9 billion, according to the latest figures available from the Governor’s Office of Management and Budget. In addition to this projected operating deficit, the State is expected to start FY2011 with an accumulated deficit from prior years of $6.1 billion, for a total year-end deficit of approximately $12 billion. The table below shows how this deficit was calculated.

In this table, Federal Sources revenues include $479 million due to a six-month extension of stimulus funding for Medicaid. However, it appears increasingly unlikely that Congress will pass the extension, potentially leaving a bigger hole in Illinois’ budget.

Governor Quinn plans to close part of the FY2011 operating deficit through $2.2 billion in borrowing from Special State Funds and securitization of the proceeds of a tobacco litigation settlement. The Governor said at the press conference that after the November elections he will continue to push for more borrowing to fund the State’s estimated General Funds pension contributions of $3.7 billion and for a personal income tax increase to 4% from 3%. Meanwhile, he said the State will make the pension contributions from the State’s General Funds.

The Governor said he plans to keep funding levels for General State Aid to elementary and secondary education, early childhood programs and special education at FY2010 levels. However, Mr. Vaught also said that every agency will be affected by spending reductions under the budget reserve process.

The Emergency Budget Act gave the Governor authority to establish budgetary reserves of roughly $2 billion. The legislature also appropriated $3.5 billion as a lump sum allocation to the Governor’s Office, and the Governor said that he has allocated all but $180 million of that amount.

This item was originally posted on July 1, 2010. Changes were made on July 7, 2010 to reflect new information obtained from the Governor’s Office of Management and Budget.